Southern Europe: all about the mid-market

Italy and Spain are already home to vibrant, well-established private equity markets – and yet in both countries the industry remains at an early stage of development compared to similar economies in Europe.

According to the European Venture Capital Association, the respective amount of private equity capital invested in either country in 2001 represented less than 0.2 per cent of domestic GDP. By comparison, the Netherlands saw private equity investment that year account for 0.45 per cent of GDP, whereas the UK figure was close to 0.7 per cent. These figures, measuring relative stages of maturity of private equity as a financing tool, provide a sense of how much further it may yet develop in a given market, as long as the overall infrastructure is reasonably conducive to investment in privately owned companies.

Herein lies much of the attraction of Italy and Spain, the two large Mediterranean economies. Whilst the bigger transactions in the mature countries are inevitably auctions, and whereas numerous international private equity firms compete for every deal in these markets, the smaller size transaction in the arguably less mature markets can provide significant upside, and be subject to less competition as fewer investors have the access and expertise to do the deals.

The following is a tour of both markets, assessing how practitioners, intermediaries and investors in Italy and Spain are preparing for a pick-up in activity that many predict to materialise some time in 2003.